FREQUENTLY ASKED QUESTIONS ABOUT INSURANCE

FAQ: Auto Insurance

What should I consider when purchasing automobile insurance?

There are a number of factors you should consider when purchasing any product or service, and insurance is no different. Here is a checklist of things you should consider when purchasing automobile insurance.

Don’t base your decision on price alone. Base your decision on a measure of value, which is what you get for your money. Consider the quality of the company’s claims service and consumer education.

Purchase the amount of liability coverage which makes sense for you.

You should decide which optional coverages you want. For example, do you want optional physical damage coverages or is the market value of your car too low to warrant purchasing them.

Once you have decided what you want in your automobile insurance policy, you can now decide who you would like to purchase the insurance from. For example, you may decide you like the idea of purchasing insurance from a mutual company rather than a stock company.

What are some practical things I can do to lower my automobile insurance rates?

If you do shop around, be careful to make sure each insurer is offering the same coverage. Many insurers use the ISO policy forms, but this is not always the case. While other insurers will lessen certain protections in order to make the policy cheaper, so you’ll buy it. It’s in these times where we need to remind ourselves that cheaper does not mean better. The best advice is not to buy insurance based on anyone’s quote, but wait until any new policy is issued before comparing your new policy to your old one… and make sure you received the coverage you wanted before canceling your old policy.

Look for any discounts you may qualify for. For example, many insurers will offer you a discount if you insure multiple cars under the same policy, or if you have had a driver education class in the last five years. Be sure to ask us about discount plans.

Another easy way to lower the cost of your automobile insurance is to increase the deductible. Simply raising your deductible from $250 to $500 can lower your premium sometimes by as much as five or ten percent. However, you should be careful to make sure that you have the financial resources necessary to handle the larger deductible.

I have an older car whose current market value is very low – do I really need to purchase automobile insurance?

Most states have enacted compulsory insurance laws that require drivers to have at least some automobile liability insurance. These laws were enacted to ensure that victims of automobile accidents receive compensation when their losses are caused by the actions of another individual who was negligent.

Except for the minimum liability coverages that you may be required to purchase, many people with older cars decide not to purchase any of the physical damage coverages. It is often the case that the cost of repairing the damages to an older car is greater than its value. In these cases, your insurer will usually just “total” the car and give you a check for the car’s market value less the deductible.

Suppose I lend my car to a friend, is he/she covered under my automobile insurance policy?

Whenever you knowingly loan your car to a friend or an associate, he or she most-likely will be covered under your automobile insurance policy. In fact, even if you do not give explicit permission each time a person borrows your car, they most-likely are covered under your automobile insurance policy as long they had a reasonable belief that you would have given them permission to drive the car. If your not sure what your policy’s exact responsibilities are under these conditions, you will want to review the “definitions” section of your policy.

What is the difference between collision physical damage coverage and comprehensive physical damage coverage?

Collision is defined as losses you incur when your automobile collides with another car or object. For example, if you hit a car in a parking lot, the damages to your car will be paid under your collision coverage.

Comprehensive provides coverage for most other direct physical damage losses you could incur. For example, damage to your car from a hailstorm will be covered under your comprehensive coverage.

It is important to know the differences between the collision and comprehensive coverages for a couple of reasons.

In order to make an informed purchasing decision about these optional coverages, you need to know the difference between them.

The deductibles under the collision and comprehensive coverages are often different in amount.

What factors can affect the cost of my automobile insurance?

A number of factors can affect the cost of your automobile insurance – some of which you can control and some which are beyond your control.

The type of car you drive, the purpose the car serves, your driving record, and where you live all affect how much your automobile insurance will cost you.

Even your marital status can affect your cost of insurance. Statistics show that married people tend to have fewer and less costly accidents than do single people.

I lease my car. Do I need GAP insurance?

Whether you lease your car or have an outstanding auto loan, GAP insurance can provide valuable protection during the early years of your car’s life. As we all know, a new car’s value drops the minute you drive it off the lot. And unfortunately, if a bus plows into the side of your new car five minutes after you drive it off the lot, your insurance only covers the actual cash value of the car. At this point, there’s a good chance the insurance payoff isn’t enough to pay off your outstanding lease (or loan) balance.

GAP insurance was created for just such a situation. If a loss occurs (theft, total loss in a collision, etc.), GAP insurance will pay the difference between the actual cash value of the vehicle and the current outstanding balance on your loan or lease. Some lenders and lessors actually require you to carry GAP coverage until the outstanding loan/lease amount drops below the value of the vehicle.

GAP insurance is typically not very expensive, since the coverage amount is relatively small. However, the cost will vary depending on the type and value of the vehicle you purchase.

FAQ: Homeowners Insurance

What is homeowners insurance and who should buy this type of coverage?

Homeowners insurance is one of the most popular forms of personal lines insurance on the market today. The typical homeowners policy has two main sections: Section I covers the property of the insured and Section II provides personal liability coverage to the insured. Almost anyone who owns or leases property has a need for this type of insurance. And most often, homeowners insurance is required by the lender as part of the requirements in obtaining a mortgage.

What is the difference between “actual cash value” and “replacement cost”?

Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policy owner is entitled to the depreciated value of the damaged property. Under the “replacement cost” coverage, the policy owner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices. The choice of which policy best suits your needs or desires is up to you when purchasing a homeowners policy, although if you currently have an actual cash value policy we can upgrade your protection to replacement cost for additional premium.

What factors should I consider when purchasing homeowners insurance?

There are a number of factors you should consider when purchasing any product or service, and insurance is no different.

Here is a short list of things you should consider when you purchase homeowners insurance.

First and foremost, purchase the amount and type of insurance that you need. Remember that if your policy limit is less than 80% of the replacement cost of your home, any loss payment from your insurance company will be subject to a coinsurance penalty. Also, determine the amount of personal property insurance and personal liability coverage that you need.

Second, determine which, if any, additional endorsements you want to add to your policy. For example, do you want the personal property replacement cost endorsement, the earthquake endorsement, etc..?

What are some practical things I can do to lower the cost of my homeowners insurance?

There are a number of things you can do to lower the cost of your homeowners insurance.

One way to lower the cost of your homeowners insurance is to look for any discounts that you may qualify for. For example, many insurers will offer a discount when you place both your automobile and homeowners insurance with the them. Other times, insurers offer discounts if there are deadbolt exterior locks on all your doors, or if your home has a security system. Be sure to ask us about any discounts you may qualify for.

Another easy way to lower the cost of your homeowners insurance is to raise your deductible. Increasing your deductible from $250 to $500 will lower your premium, sometimes by as much as five or ten percent. However, be careful to make sure that you have the financial resources necessary to handle the larger deductible.

What are the policy limits (i.e., coverage limits) in the standard homeowners policy?

[Note: this answer is based on the Insurance Services Office’s HO-3 policy.]

Coverages A and B provide protection to the dwelling and other structures on the premises on an all risks basis up to the policy limits. The policy limit for Coverage A is set by the policyowner at the time the insurance is purchased. The policy limit for Coverage B is usually equal to 10% of the policy limit on Coverage A. Coverage C covers losses to the insured’s personal property on a named perils basis. The policy limit on Coverage C is equal to 50% of the policy limit on Coverage A. Coverage D covers the additional expenses that the policyowner may incur when the residence cannot be used because of an insured loss. The policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. The coverage limit on Coverage E â€” Personal Liability â€” is determined by the policyowner at the time the policy is issued. The coverage limit on Coverage F â€” Medical Payments to Others â€” is usually set at $1000 per injured person.

Where and when is my personal property covered?

Coverage C, which provides named perils coverage, applies to all your personal property (except property that is specifically excluded) anywhere in the world. For example, suppose that while traveling, you purchased a dresser and you want to ship it home. Your homeowners policy would provide coverage for the named perils while the dresser is in transit â€” even though the dresser has never been in your home before.

Do I need earthquake coverage? How can I get it?

Direct damages due to earthquakes are not covered under the standard homeowners insurance policy. However, unless you consider yourself living in an area that is prone to earthquakes, you may not want this coverage. If you do live in a part of the country with high earthquake activity you may want to consider adding an earthquake endorsement to your homeowners insurance policy. This endorsement will cover damages due to earthquakes, landslides, volcanic eruptions and other earth movements.

There is only one way to find out the answer to this question, and that is to check your policy. Homeowners policies regularly provide protection for off-premise destruction or theft, which covers your possessions while they are outside your home. For example, if your luggage were stolen while you’re on vacation, a homeowner’s policy containing off-premise protection would cover the loss. This type of protection can also protect your kids’ stereo equipment and other possessions when they go off to college – if they live in a dormitory. Once a child moves to an off-campus apartment, he or she will typically need to purchase a separate renters insurance policy to cover their personal property.

If your homeowners policy does not contain off-premise protection as part of your standard coverage, you may be able to purchase this coverage for an additional charge.

You should check the liability portion of your policy to determine your level of coverage for accidents that occur outside your home. Homeowners policies typically cover accidents that occur on your property – if the mailman slips on your sidewalk, or if a neighbor is injured in your backyard. Many policies will even cover you for accidents that occur away from your property. For example, if you run a shopping cart over someone’s foot at the grocery store, many policies will cover the medical bills. But once again, the only way to know whether you’re covered is to carefully read your homeowners insurance policy.

How much of the exterior of my property is covered by homeowners insurance–fencing, driveway, etc.?

Many people don’t realize it, but homeowners insurance covers a lot more than just your house. A standard homeowners insurance policy provides broad protection for personal property and other structures located in and around your home.

Several different types of coverage are included in every standard homeowners insurance policy (HO-1, HO-2, and HO-3–the three standard policy types available for most homes). Coverage A is strictly for the physical structure of your home, including additions permanently attached to the structure (such as an attached garage). Coverage B insures other structures on the premises, including detached garages, fences, swimming pools, driveways, and sidewalks. The limit on this coverage is typically 10 percent of the Coverage A amount. Coverage C insures your personal property, including all of your household possessions and other items such as awnings, outdoor antennas, and carpeting. The limit on Coverage C protection is typically 50 percent of the Coverage A amount. Additionally, all standard homeowners policies include various “additional coverages” for items such as debris removal, trees, and shrubs. Each of these coverages has its own dollar limit.

While homeowners insurance coverage is very broad, there are certain items which are not covered. For example, motorized vehicles (e.g., cars, motorcycles, go carts, golf carts, and snowmobiles) are not covered by your homeowners insurance. Animals, birds, and fish are not protected under homeowners insurance, either.

Keep in mind, too, that your homeowners insurance policy only covers the above-listed property if it is damaged or destroyed by an insured peril. Personal property is only protected against the perils listed in your policy, while your dwelling may be insured against named perils (HO-1 and HO-2) or open perils (HO-3).

My neighbor’s tree fell across my fence. Will their insurance cover the damage?

In most cases, your insurance will be the one to cover the damage. Although the tree fell from your neighbor’s property, the damage affected your property. Your homeowners insurance covers damage to your property, so you should make a claim under your policy. Your policy probably also provides coverage to remove the debris from your property (typically up to $500).

There are a few exceptions to this general rule, however. For example, say you notice that your neighbor’s tree has a large, dead branch hanging precariously over your property. You notify your neighbor in writing of this hazard and ask him to address the problem, but he chooses to ignore it. Two weeks later, the branch comes crashing down and destroys your fence. In this case, you may have some recourse against your neighbor’s insurer, because your neighbor had notice of a potential hazard and did nothing to improve the situation. Make sure you keep records of all correspondence and actions regarding the situation, so that you have something to back up your story if you have to contact your neighbor’s insurer.

Complications may also arise depending on what actually caused the tree to fall. If the tree fell in a windstorm, or if it was struck by lightning, there is little question that the damage will be covered. However, certain perils such as floods and earthquakes are not covered under standard homeowners policies. If the tree fell as a result of such an event, the damage may not be covered at all. To find out for sure, you’ll have to contact your insurer.

FAQ: Renters Insurance

Why would I want to buy renters insurance?

If you live in an apartment or a rented house, renters insurance provides important coverage for both you and your possessions. A standard renters policy protects your personal property in many certain cases of theft or damage and may pay for temporary living expenses if your rental is damaged. (including loss of use). It can also shield you from personal liability. Anyone who leases a house or apartment needs should consider this type of coverage.

How does a renters policy protect my personal property?

A renters policy provides named perils coverage. This means your property is protected from all the perils that are specifically listed on your policy. These usually include:

Fire or lightning

Windstorm or hail

Explosions

Riots

Aircraft

Vehicles

Smoke

Vandalism or malicious mischief

Theft

Falling objects

Weight of ice, snow, or sleet

Accidental discharge or overflow of water or steam

Sudden and accidental tearing apart, cracking, burning, or bulging

Freezing

Sudden and accidental damage from artificially generated electrical current

Volcanic eruptions (but this doesn’t include earthquake or tremors)

Renters coverage applies to your personal property no matter where you are in the world. This means you’re covered when you are on vacation as well as at home.

Why do some apartment complexes require tenants to have renters insurance?

The owners of these apartment complexes require their tenants to have renters insurance to ensure that they have personal liability coverage. Owners of apartment complexes carry property insurance to protect themselves in the event that the apartment building is damaged. However, if a negligent tenant causes damage, the owner’s insurer will sue the responsible tenant for the amount of damage they caused. The owner wants to make sure that the tenant has insurance coverage that will protect him or her in this event.

What if I share my apartment with a roommate? Do we both need to have renters insurance?

Standard renters policies cover only you and relatives that live with you. If your roommate is not a relative, each of you will need your own renters policy to cover your own property and to provide you liability coverage for your own actions.

FAQ: Life Insurance

How much life insurance should an individual own?

Rough “rules of thumb” suggest an amount of life insurance equal to 6 to 8 times annual earnings. However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed.

Important factors include:

Income sources (and amounts) other than salary/earnings

Whether or not the individual is married and, if so, what is the spouse’s earning capacity

The number of individuals who are financially dependent on the insured

The amount of death benefits payable from Social Security and from an employer sponsored life insurance plan

It is recommended that a person’s insurance adviser be contacted for a precise calculation of how much life insurance is needed.

What about purchasing life insurance on a spouse and on children?

In certain circumstances, it may be advisable to purchase life insurance on children; generally, however, such purchases should not be made in lieu of purchasing appropriate amounts of life insurance on the family breadwinner(s). It is of utmost importance that the income earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the required amount of life insurance before contemplating the purchase of life insurance on children or on a non-wage earning spouse. In a dual-earning household, it is important to protect the income earning capacity of both spouses. Life insurance on a non-wage earning spouse is often recommended for the purpose of paying for household services lost at this individual’s death.

Should term insurance or cash value life insurance be purchased?

Although a difficult question–one whose answer will vary depending on circumstances–several principles should be followed in addressing this issue.

It must first be recognized that in any life insurance purchasing decision, there are at least two basic questions that must be answered:

“How much life insurance should I buy?” and

“What type of life insurance policy should I buy?”

The question contained in (1) involves an “insurance” decision and the question contained in (2) requires a “financial” decision.

The “insurance” question should always be resolved first. For example, the amount of life insurance that you need may be so large that the only way in which this needed amount of insurance can be afforded is through the purchase of term insurance with its lower premium requirements.

If your ability (and willingness) to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, it is then appropriate to consider the “financial” decision–which type of policy to buy. Important factors affecting the “financial” decision include your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer), and the rate of return on alternative investments possessing similar risk.

How does mortgage protection term insurance differ from other types of term life insurance?

The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods, e.g., 15, 20, 25 or 30 years. Although the face amount decreases over time, the premium is usually level in amount. Further, the premium payment period often is shorter than the maximum period of insurance coverage–for example, a 20-year mortgage protection policy might require that level premiums be paid over the first 17 years.

Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?

Yes; the purchase of a new mortgage protection term insurance policy is usually not required by the lender. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured’s death.

Credit life insurance is frequently recommended in conjunction with the taking out of an installment loan when purchasing expensive appliances or a new car, or for debt consolidation.

Is credit life insurance a good buy?

Credit life insurance is frequently more expensive than traditional term life insurance. Further, if you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost. Therefore when purchasing Term Life Insurance, it’s always good advice if you consider purchasing enough to cover more than your current debts and needs. The reason being, should you require Credit Life in the future you would be more likely to have the additional coverage built in to your current level of protection. Which could easily save you the cost on additional short-term (high cost) additional coverages.

I’m single. Do I need life insurance?

Single people often think they don’t need life insurance, and in many cases, they are right. However, there are many factors that determine your need for life insurance; marital status is just one.

First of all, do you have any dependents? Just because you aren’t married doesn’t mean you have no financial responsibilities. If you have children, or if you provide support for a parent or grandparent, your death could create a serious financial hardship for these dependents. Life insurance can provide a continued stream of income for your loved ones if you die prematurely. It can also provide peace of mind for you, knowing that they will be taken care of when you’re gone.

Do you have a mortgage or other loans that are jointly held with a cosigner? If so, your death would leave the cosigner responsible for the entire debt. You might want to consider purchasing at least enough life insurance to cover these debts in the event of your death. If you have debts for which you alone are responsible, your creditors can make a claim for payment against any assets in your estate.

Are you at risk for any serious medical conditions? If, for example, your family medical history includes certain genetic conditions (diabetes, certain types of cancer, etc.), it may make sense to purchase life insurance while you are young and healthy. Purchasing life insurance after you develop such a condition could be difficult, or even impossible. If you choose to buy insurance for this reason, consider adding a guaranteed insurability rider to your policy. This rider guarantees you the right to purchase additional insurance at specified times, without having to provide proof of insurability.

If you died tomorrow, would you leave enough to cover your funeral expenses? If not, who would be responsible for paying? For many families, even a relatively simple funeral can create a major financial burden. For this reason alone, you might consider purchasing a small life insurance policy, or even a simple burial policy. As an alternative, you could invest the premiums you would spend on such a policy, and make sure your family knows this investment is earmarked for your final expenses, should the need arise.

Even if you determine that you don’t need life insurance, make sure your other insurance needs are covered. You may not realize it, but disability insurance is just as important as life insurance. Statistically speaking, you are much more likely to become disabled than to die prematurely. Disability insurance can replace lost income if you are unable to work due to serious illness or injury.

I applied for a life insurance policy and was told that I would have to take a medical exam. What should I expect at this exam, and is there anything I should do to prepare for it?

Generally, you won’t have to take a complete medical exam if you’re under age 40 and applying for life insurance coverage of less than $100,000. However, the older you are, the less life insurance you can buy without a medical exam. Of course, these figures also depend on your health history and the underwriting guidelines of the insurance company.

A typical medical exam may include a basic physical, blood work, and urine tests. Some insurers also require EKGs and/or treadmill EKGs (stress tests), especially for large life insurance policies. You’ll also have to provide information on your medical history, including the names of doctors you’ve seen, dates you saw them, and any treatment recommended. A nurse or doctor (often an independent contractor) who is paid by the insurance company will normally conduct the exam.

If you have a medical condition, there’s really nothing you can do to hide it. In fact, you shouldn’t try. Insurers have access to an amazing amount of medical information through the Medical Information Bureau, so even if you attempt to obscure the facts, there’s a good chance an insurance company will find the information it needs. In addition, if the insurance company discovers you have withheld information, it will look at everything else much more closely.

There are a number of simple steps you can take to make sure you get the best possible results at your medical exam:

Get a good night’s sleep the night before the exam

Fast for eight hours before the exam if possible to ensure the most accurate results

Don’t smoke for at least one hour before the exam

Avoid caffeine for at least one hour before the exam

Avoid alcohol for at least eight hours before the exam

Don’t engage in strenuous exercise for 24 hours before the exam

Limit your consumption of salt and cholesterol for 24 hours before the exam

Cancel the exam if you get sick–even a minor infection can distort the results

What is a personal umbrella liability policy?

The personal umbrella liability policy is an insurance contract designed to accomplish two goals.

First, it increases the liability protection beyond what the policy owner already has in his or her homeowners and automobile insurance policies.

Second, the personal umbrella policy is designed to fill in the gaps in a policy owner’s liability coverage since several types of liability exposures exist that are not covered by automobile and homeowners policies.

Together with homeowners and automobile insurance policies, broad personnel liability protection is attained through the purchase of a personal umbrella policy.

How do I know if I need a personal umbrella liability policy?

It used to be that the only people who needed personal umbrella liability policies were wealthy individuals who had sizable amounts of personal assets that would be at risk in a lawsuit.

However, in our very litigious society, many people are realizing that they have a need for more liability insurance than what is provided under their homeowners and automobile insurance policies. The personal umbrella policy is ideally suited to provide this protection at extremely affordable rates.

FAQ: General Questions About Insurance

What kinds of questions should I be expected to answer when I am applying for an insurance policy? Why do insurers ask all of these questions?

When you apply for an insurance policy, you will be asked a number of questions. For example, your name, age, sex, address, etc. In addition, you will be asked a number of other questions which will be used to determine what type of risk you are.

For example, when an insurance company is deciding whether or not to supply automobile insurance to a potential policy owner, it will want to know about the person’s previous driving record, whether there have any recent accidents or tickets and what type of car is to be insured.

All of this information will be used for two purposes.

Based upon the responses to these questions, the insurance company will decide whether the profile of the applicant is consistent with the type of risks the insurer is trying to attract. Some insurers specialize in offering insurance to only very safe drivers and therefore will only accept applications from people who fit the profile of a safe driver. While others may base their policies on those who are considered a higher risk, and charge accordingly.

Once the insurer has decided that your risk profile is consistent with the types of risks it accepts, the answers to the questions will be used to determine which rate catagory should be applied. For example, the insurance company will decide whether you should be offered insurance at the high risk driver rate or the low risk driver rate.

Collectively, this entire process is known as the underwriting process and every insurance company has one. The primary function of the underwriting department in an insurance company is to decide whether or not to offer insurance to a person who has completed an application.

If the answer is yes, then the underwriting department seeks to determine the “quality” of that risk so that the proper premium can be charged. That is, high risk people should pay more than low risk people because of the greater possibility of experiencing a loss.

My child is heading off to college this fall. What insurance issues does this raise?

As you send your children off to college, you probably have a lot of things on your mind – whether they’ll eat right and get enough sleep, how to pay the tuition bills, what to do with that empty bedroom, etc. For most people, insurance concerns are pretty low on the priority list. But there are some important issues you should consider.

Issue #1: Health insurance – make sure your child is covered. Your medical plan probably covers your children until they’re somewhere between 20 and 24 years of age, regardless of whether or not they live at home. But if the plan is an HMO and your child’s college is far from home, accessing an approved provider may prove difficult. As an alternative, consider purchasing health insurance coverage through your child’s college. Many colleges and universities offer low-cost health insurance for students. Cost and level of coverage vary greatly from one school to the next, but school-subsidized health insurance is often less expensive than continuing coverage through your existing health plan. And since health care is typically provided on-campus, it may be easier for the student to access.

Issue #2: Homeowner’s/Renters insurance – make sure your child’s possessions are covered. If your child lives in a dorm or other university housing, their personal property is typically covered under your homeowners insurance policy. Check your policy for coverage limitations on computers and stereos, if your child can’t live without these. Once a student moves out of the dorms and into an apartment, they are usually no longer covered under your policy. Off-campus students should purchase a renters insurance policy to cover their possessions.

Issue #3: Auto insurance – make sure the car is covered. If your child will be taking a car to school, make sure the car is properly insured. If the child owns the car, then the insurance policy must be in the child’s name as well. If the child is “borrowing” a car from Mom and Dad, the child must be listed on the insurance policy. Some insurance companies may require the child to be listed as the primary operator, since the car is in the child’s possession and not the parents’.

How often should I check my Social Security earnings record? Is there much of a chance that an error may occur?

You should check your Social Security earnings record at least once every three years. Errors in your earnings record are more likely to occur if you change jobs frequently or have more than one employer.

To check your earnings record, you should complete and return an SSA-7004, Request for Earnings and Benefit Estimate Statement. You may complete and transmit the SSA-7004 online. Or, if you prefer, you may download the SSA-7004 from the Social Security Web site server and mail it to them. Within four weeks after submitting the request, you’ll receive a statement from them showing your earnings as reported to Social Security by your employer(s).

What do I give up by not using an agent to purchase insurance?

The disadvantage of not using an agent to purchase insurance is that the policyholder does not receive as much, or often any, personal service. A licensed agent with whom there is direct contact can be vital when purchasing a product and absolutely necessary when filing a claim. Without an agent to act as your personal advocate during the claims process, you are left to take care of the details on your own… not sure who to contact at the insurance company or who you can really trust to help you during the times in life when you need help the most. Without an agent you are on your own to absorb the frustration and expense of resolving your problems.

Am I at risk if I don’t use a licensed agent?

Many “direct writing” insurance companies/providers fail to tell you that the “call center personnel” who will take your information and issue the policy ARE NOT licensed to sell insurance, therefore lacking the professional knowledge to guide you toward an acceptable level of protection. These companies are conducting business using a loophole within the law which allows the company to have 1 license while everyone else works without it. Going this route can place your financial future at risk because unlicensed personnel are trained to simply sell you a policy without being aware of what “real” protection means.

For instance, imagine you own a $150,000 home and your auto insurance policy’s liability limits are $50,000. When you purchased the policy you were told this was plenty of protection considering your state’s minimum requirement for liability is $20,000. Yet if you have an accident and are sued for $200,000 your policy is only going to pay out $50k, leaving you responsible for the remaining $150k. Since your home would cover the difference, a court judgment could force you into selling your home as a way to settle the suit. If your policy’s liability limits had protected you at a minimum of $200,000, the policy would be paying for the total suit.

Because direct writers are typically located hundreds (if not thousands) of miles from where you live, many won’t hesitate to sell you a policy with low liability limits as a way to simply make the policy cheaper while convincing you to buy it. Leaving you extremely vulnerable to financial disaster.

FAQ: Credit Scoring

Why do insurers use credit?

Insurance companies use financial history along with other factors (such as, in the case of auto insurance, years of driving experience) to properly classify an insured according to his/her potential risk. Studies have shown a correlation between a consumer’s financial history and his/her future insurance loss potential. Thus, some insurance companies believe the use of credit helps to underwrite an applicant at a cost that reflects their specific risk.

Inquiries- Identifies credit grantors or other authorized parties that have received a copy of the consumer’s credit report, typically during the past 2 years. Also, lists companies who received consumer information for the purpose of offering credit or other promotions.

Why do insurance companies use scored credit reports?

Scores provide an objective and consistent tool that some insurers use along with other applicant information to better predict the likelihood of a consumer filing future claims. Scores also help streamline the decision process, so policies can be issued more efficiently. By predicting the likelihood of future claims, insurers can control risk, thereby enabling them to offer insurance coverage to more consumers at a fair cost.

What is an insurance score? How does it differ from a financial credit score?

An insurance score is a credit-based statistical analysis of a consumer’s likelihood of filing an insurance claim within a given period of time in the future. This data can help underwriters better assess risk exposure prior to granting insurance coverage.

A financial credit score is a credit-based statistical analysis of a consumer’s likelihood of paying an installment loan (mortgage, auto loan, etc.) or revolving debt (credit card, etc.) when due. Creditors use the score to help determine whether to grant credit.

Using statistical programs, a consumer’s credit information is compared to the performance of consumers with profiles similar to the subject consumer. A credit scoring system awards or subtracts points for various factors or variables in the credit report to determine the score. The score predicts the likelihood of certain events occurring.

Most scoring systems generate “reason codes” in addition to the numeric score. The reason codes will identify up to four principal factors that influenced the score.

What variables (data elements in a credit report) are used in calculating an insurance score?

Some credit variables that are used include: outstanding debt, length of credit history, late payments, new applications for credit, types of credit used, payment patterns, available credit, public records, and past due amounts. A credit report can contain both positive and negative information. Different scoring models may use different credit variables. All variables in a model are considered together to produce the best prediction.

What variables are NOT used in calculating an insurance score?

Race, color, religion, national origin, gender, marital status, sexual orientation, age, address, salary, disability, occupation, title, employer, date employed or employment history are not used for scoring purposes. Inquiries made for account reviews, promotions or insurance purposes are not used in calculating an insurance score. Also, other variables that, by law, may not be considered are disregarded.

What are the different types of scores delivered by ChoicePoint for insurance purposes?

Insurance companies use a variety of score models. Some companies use generic insurance scores that have been developed by ChoicePoint or other third parties. A growing number of insurance carriers use custom scores that have been developed to meet that company’s specific underwriting criteria.

There are different types of insurance scores. Some are used for auto insurance purposes, and others are used for homeowner’s insurance purposes.

The scores usually incorporate credit data, but some models also consider other data, such as claims history.

Different insurance score models will/may calculate a different numeric score and reason codes.

What is ChoicePoint’s role in supplying the credit report and/or insurance score to the insurance company?

ChoicePoint is a reseller of credit information. ChoicePoint provides a system for the carrier’s home office or insurance agent to access credit bureaus in order to receive an individual’s credit report. Once the report is obtained by ChoicePoint, a score may be systematically calculated and returned to the insurance company to assess the risk and assist in making an underwriting decision.

The data returned to the insurance company or agent can include the full credit report, a subset of the credit report, an insurance score, reason codes, a customized message based on the credit data and the carrier’s underwriting guidelines, or a combination of these information products.

ChoicePoint is considered a Consumer Reporting Agency under the Federal Fair Credit Reporting Act and its state analogues (“FCRA”), but ChoicePoint is not a credit bureau or insurance company. ChoicePoint does not make credit decisions or determine insurance underwriting guidelines. ChoicePoint’s role is to supply information to the insurance carriers, which the carriers can review in order to assist them in making an underwriting decision.

Who makes the decision to grant or deny insurance coverage or to charge a particular rate or premium?

Decisions about insurance coverage and/or rates are made by the insurance companies.

Each insurer develops underwriting decisions based on their own business requirements. Insurance companies evaluate credit reports and/or insurance scores according to their own proprietary strategies. Other information, such as application data, prior claims/loss data or motor vehicle records, may also be evaluated as part of the insurance underwriting process.

Many insurance companies have automated the evaluation process. The decision may be delivered to an agent via a ChoicePoint system, but the guidelines used to make that decision are determined by the insurance company.

What is the Fair Credit Reporting Act (FCRA)?

The Fair Credit Reporting Act is a federal law designed to promote the accuracy, fairness, and permissible use of information contained in the files of Consumer Reporting Agencies. In general, the FCRA requires that:

Access to a consumer’s file is limited to those with a permissible purpose.

Generally, adverse information that is more than seven years old may not be reported, except in certain circumstances.

A consumer must be told if information in a credit report has had an adverse impact on him/her.

A consumer can find out what is in his/her consumer reporting file.

A consumer can dispute inaccurate items with the source of the information. (In the case of credit information, this is the credit bureau, not ChoicePoint.)

Inaccurate information must be corrected.

Section 604(f) of the FCRA prohibits any person or company from obtaining a consumer report from a Consumer Reporting Agency unless the person has certified to the Consumer Reporting Agency (by a general or specific certification, as appropriate) the permissible purpose(s) for which the report is being obtained and certifies that the report will not be used for any other purpose.

Section 607(e) of the FCRA requires any person or company who obtains a consumer report for resale, as ChoicePoint does, to disclose the identity of the end user to the Consumer Reporting Agency (in our case, this is one of the credit bureaus) from which such report is obtained and to identify to such Consumer Reporting Agency each permissible purpose for which the reports are resold.

Are insurance companies authorized to obtain a copy of the consumer’s credit report?

The protection of personal privacy and the responsible use of information are cornerstones of ChoicePoint’s business practices. Only businesses or individuals with a “permissible purpose” can access a consumer’s credit report. ChoicePoint complies with the guidelines of the FCRA which was approved by Congress in 1970 and amended effective 1997.

Per the FCRA, ChoicePoint (as a Consumer Reporting Agency) may furnish a consumer report for the following insurance related purposes:

To a person or company which ChoicePoint has reason to believe intends to use the information in connection with the underwriting of insurance involving the consumer. This includes situations where the consumer asks for an insurance quote or applies for insurance.

To a person or company which ChoicePoint has reason to believe intends to use the information to review an account to determine whether the consumer continues to meet the terms of the account. This may be done periodically by the insurance company where a consumer already has coverage.

In both circumstances, the transaction to ChoicePoint ordering the credit report is initiated by and at the request of the insurance company or agent.

How can I find out what my insurance score is?

Per the FCRA, a Consumer Reporting Agency shall, upon request, clearly and accurately disclose to the consumer all information in the consumer’s file at the time of the request. The federal FCRA does not require a Consumer Reporting Agency to disclose to a consumer any information concerning credit scores or any other risk scores or predictors relating to the consumer.

However, ChoicePoint feels this information is valuable for a consumer to know. Thus, ChoicePoint is currently designing a mechanism to disclose insurance scores to consumers in the near future.

What are the different types of inquiries on my credit report and do they affect my score?

An inquiry is posted to a consumer’s credit report every time an individual or a business reviews or obtains a copy of the credit report.

Inquiry types of “AR” (Account Review) and “PRM” (Promotional) appear only on credit reports received directly by the consumer from the credit bureau itself. These types of inquiries do not appear on credit reports sold to a commercial user (any entity that buys a credit report for a permissible purpose) or on credit reports ordered via the ChoiceTrust web site.

Account Review (AR) inquires result from the purchase of a credit report by a company reviewing the credit report of its accountholders.

Promotional (PRM) inquiries result from the purchase of a credit report by a company that reviews the consumer’s credit file in order to make firm offers of credit or insurance. In such a case, the company does not view the credit report. Rather, it receives the name and address of the consumer only if such consumer meets the company’s predefined criteria, which has been conveyed from the company to the credit bureau.

Only commercial inquiries initiated at the consumer’s request are used in scoring models. Additionally, certain types of inquiries may not be used in some insurance or financial scoring models (such as inquiries made by insurance agents or companies). Other inquiries (such as auto loan inquiries) may be counted only once if multiple inquiries appear over a given period of time.

The insurance models supported by ChoicePoint do not consider the presence of insurance inquiries as an adverse characteristic. Furthermore, they believe the predominant scoring models in the marketplace also do not consider insurance inquiries to be an adverse characteristic; however, some institutions may.

A consumer may obtain insurance quotes from an agent representing multiple insurance companies, or directly from several insurance companies. In this case, if these companies use credit as part of their underwriting criteria, there may be multiple inquiries posted on the consumer credit file – one for each insurance company.

If a credit report is obtained via ChoicePoint, the name of the ordering entity posted on the inquiry may be shown as ChoicePoint (which orders the report as a reseller), the name of the insurance company on whose behalf ChoicePoint places the order, the name of the insurance agent/agency on whose behalf ChoicePoint places the order, or some combination of these names.

For how long may a Consumer Reporting Agency report adverse information about me?

Generally, no Consumer Reporting Agency may make any consumer report containing any of the following information:

Cases under Title 11 or under the Bankruptcy Act that, from the date of the entry of the order for relief or the date of adjudication, as the case may be, pre-date the report by more than 10 years

Civil suits, civil judgments, and records of arrest that, from the date of entry, pre-date the report by more than 7 years or until the governing statue of limitations has expired, whichever is longer

Paid tax liens which, from date of payment, pre-date the report by more than 7 years

Accounts placed for collection or charged to profit and loss which pre-date the report by more than 7 years

Any other adverse item of information, other than records of convictions of crimes, which pre-date the report by more than 7 years.

How do I obtain a copy of my credit report?

If adverse action was taken against the consumer, based in whole or in part on the consumer’s credit information, within the 60 days preceding the consumer’s request for disclosure, the FCRA requires credit bureaus to provide a copy of the credit report to the requesting consumer free of charge. For insurance purposes, adverse action can include, among other things, a consumer being denied insurance or being charged a higher premium. It is the responsibility of the insurance company to notify the consumer of the adverse action.

If an Experian or Equifax credit report was obtained via ChoicePoint, the insurance company should include the ChoicePoint Consumer Disclosure Center contact information and NCF Reference Number in this notification. The consumer may contact ChoicePoint, and ChoicePoint will order a copy of the credit report from the credit bureau on the consumer’s behalf. The credit bureau will then send a copy of the credit report directly to the consumer’s address.

If the credit report was obtained from Trans Union via ChoicePoint, the insurance company should include the Trans Union contact information in the notification. The consumer will need to deal directly with Trans Union.

Since ChoicePoint is a reseller for the credit bureaus, ChoicePoint does not have access to the consumer’s credit file and is unable to change any data contained therein. Therefore, once a copy of the credit report is obtained by the consumer, he/she should contact the credit bureaus directly to question or dispute any information contained in the credit file. By law, the credit bureau must investigate and respond to the request within 30 days.

Consumers who wish to receive a copy of his/her credit reports should contact the credit bureaus directly: